SMM Morning Comments (May 18): Base Metals Closed Mixed on Expected Recovering Demand and Economic Development Worries

SHANGHAI, May 18 (SMM) - Shanghai and LME base metals closed mixed as the easing pandemic in China signaled recovering demand, while market caution increased yesterday when the Fed's Powell stated that if inflation does not fall back, the Fed will continue to raise rates until it does.

LME copper rose 0.5%, aluminium added 1.66%, lead lost 0.95%, zinc jumped 1.44%.

SHFE copper rose 0.22%, aluminium fell 0.2%, lead lost 0.54%, zinc inched up 0.02%.

Copper: LME copper opened at $9,402/mt yesterday and then hit the lowest and highest price of $9,333.5/mt and $9,434/mt respectively. At last, the prices closed at $9,336/mt, up 0.5%. Trading volume was 12,000 lots, and open interest stood at 246,000 lots.

SHFE 2206 copper contract opened at 72,060 yuan/mt in overnight trading, and then dropped to a low of 71,710 yuan/mt. At last, the prices closed at 71,800 yuan/mt, up 0.22%. Trading volume was 21,000 lots, and open interest stood at 138,000 lots.

On the macro front, the US dollar continued to fall from a 20-year high against a basket of major currencies as rising investor risk appetite weakened the appeal of the greenback, with US stocks closing lower overnight, boosting copper futures. On the data front, yesterday's release of US retail sales growth of 0.9% in April suggested that demand remained strong, easing fears that the economy was about to slip into recession. In addition, market caution increased yesterday when the Fed's Powell stated that if inflation does not fall back, the Fed will continue to raise rates until it does.

In the spot market, the market transactions were relatively active in the first trading day after the delivery of SHFE 2205, and restocking demand in Zhejiang and Jiangsu was robust as a whole. In addition, under the relatively clear signal of an upcoming removal lockdown after the central government declared COVID-zero achieved on the social level in Shanghai, the traders purchased more actively. Premiums also rose amid low social inventory and concentrated maintenance.

LME copper will trade between $9,300-9,480/mt today; SHFE copper prices are expected to move between 71,600-72,200 yuan/mt. Spot premiums are likely to trade between 350-450 yuan/mt.

Aluminium: The most-traded SHFE 2206 aluminium contract opened at 20,480 yuan/mt overnight and rose to 20,530 yuan/mt before closing at 20,405 yuan/mt, down 40 yuan/mt or 0.2%.

LME aluminium opened at $2,839/mt on Tuesday and closed at $2,882/mt, an increase of $47/mt or 1.66%.

A smelter cut its output last Friday following an accident, allowing aluminium prices to rebound. However, after the market digested the news this week, aluminium prices came under pressure after rebounding to around 20,500 yuan/mt. SHFE aluminium failed to extend the previous upward momentum, and moved down due to a lack of bullish factors. Due to the current weak demand, the most-traded SHFE 2206 aluminium contract will continue to fluctuate within the range of 20,000-20,600 yuan/mt.

Lead: LME lead opened at $2,107.5/mt and stabilized during the Asian trading hours. During the European trading hours, LME lead briefly hit the highest point at $2,125.5/mt and fell to $2,094/mt, down 0.95% overnight.

SHFE lead opened at 14,805 yuan/mt and briefly hit the highest point at 14,940 yuan/mt and then fell to the lowest point at 14,770 yuan/mt, finally closed at 14,830 yuan/mt, down 0.54%. The open interest decreased by 921 lots from the previous trading day to 54,178 lots.

Both domestic and abroad lead futures declined again under pressure. As the Fed's hawkish remarks about interest rate hike are still fermenting, it is expected that SHFE lead will still below 14,900 yuan/mt amid pressure.

Zinc: LME zinc closed at $3,652/mt on Tuesday, up $52/mt or 1.44%. The open interest fell 4,034 lots to 2260,000 lots. LME zinc is expected to move between $3,650-3,700/mt today. Overnight LME inventory lost 100 mt to 86,125 mt, a decrease of 0.12%. Constantly falling LME inventory, weak US dollar as well as expected improving demand all offered support to LME zinc.

The most traded SHFE 2206 zinc contract closed at 25,795 yuan/mt, up 5 yuan/mt or 0.02% overnight. The open interest fell 1,535 lots to 87,671 lots. SHFE zinc is expected to move between 25,500-26,000 yuan/mt, and domestic Shuangyan zinc will be in premiums of 60-80 yuan/mt over SHFE 2206. Although the consumption will be supported by relative policies, the weak fundamentals were still in place recently, and it may be hard to break the resistance at 26,000 yuan/mt, hence the contract is expected to move rangebound.

Overnight, Fed Chairman Jerome Powell vowed to raise rates until a drop in inflation; US Treasury Secretary Yellen and Trade Representative David Deutch disagreed on whether to cut tariffs on China; more than 250 Ukrainian defenders surrendered at the Azov steel plant as Russia took control of Mariupol; US stocks closed sharply higher, boosted by Apple, Tesla and other growth stock giants.

Tin: Overnight, the most-traded SHFE tin contract moved in a narrow range, with open interest down. Domestic tin inventory under SHFE warrants did not change much, while LME tin inventory was also little changed. The mainstream transaction prices in the spot market continued to drop, but the market transaction continued to shrink. The price decline has slowed down and wait-and-see sentiment dominated the market. SHFE tin is expected to remain rangebound. 

Nickel: On the supply side, the SHFE nickel rose yesterday while the LME nickel maintained a correction trend. The import was still on the ground of profit-making as the SHFE/LME price ratio further recovered to 7.7 from 7.5 the day before. In terms of NPI, the NPI prices continued to declined with a large number of transactions. However, with the weakening of cost, supply and demand support, the decline of NPI prices may be limited in the long term. Affected by the continuous pulling back of LME nickel, the nickel sulphate prices remained declined. From the demand side, as the stainless steel market was affected by the correction of NPI prices, steel mills have lowered their guide prices for two consecutive days. In this case, the market was in a stronger wait-and-see sentiment. In terms of alloys, the recent rigid procurement has already finished due to the delayed production orders, hence the current purchase expectations gradually declined. In summary, affected by high nickel prices and the pandemic, the demand was still weak, and attention should be paid to the import of pure nickel in the future.

[Disclaimer: The above representation and data is based on market information SMM believes to be reliable at the time of acquiring as well as the comprehensive assessment by SMM research team, and any and all information provided in this article is for reference only. This article does not constitute a direct recommendation for investment or any decisions in any form and clients shall act on their own discreet and any decisions made by clients are not within the responsibility of SMM.]